Old Mutual on track to float two business as part of 'managed separation'

Investors in Old Mutual were preparing to gather for the company’s annual general meeting on Thursday morning, with chief executive Bruce Hemphill set to update them on the company’s trading for the year, as well as an update on its ‘managed separation’.

The FTSE 100 firm’s board was “very pleased” with the progress made since announcing the separation, Hemphill said, which involved the creation of four independent businesses.

With the recently announced transaction over the sale of Old Mutual Asset Management, Hemphill said that business was now independent.

“We are aiming to complete the two listings that will materially deliver the managed separation at the earliest opportunity in 2018 after our full year results, subject to regulatory and other approvals.”

On the operational front, Hemphill said with regards to Old Mutual Emerging Markets (OMEM) that the “tough” macroeconomic environment in South Africa, exacerbated by the sovereign downgrades, meant customers continued to face financial challenges.

“This has contributed to April year-to-date gross sales and NCCF tracking below prior year as well as a slight deterioration in persistency.

“We have however seen an improvement in underwriting experience in both P&C and our Corporate book, following management actions taken and continue to manage expenses tightly. OMEM continues to have expectations for moderate full year earnings growth.”

Since the company last updated the market on the separation on 9 March, it said it had taken a number of steps, including the 25 March announcement that it had agreed to sell a 24.95% shareholding in OMAM to HNA Capital US in a two-step transaction for gross cash consideration of approximately $446m.

On 27 April, it also announced that it had agreed to sell its 26% stake in Kotak Mahindra Old Mutual Life Insurance to the joint venture partner, Kotak Mahindra Bank.

The gross consideration for that transaction was INR 12,927m.

Additionally, on 16 May, Old Mutual announced that it had conducted a secondary offering of 17.3 million shares in OMAM at a price to the public of $14.55 per share and entered into a repurchase agreement with OMAM for a further five million shares also at $14.55 per share.

Old Mutual would realise proceeds less the underwriting discount from the offering and repurchase transactions of $321.9m, and following the sale, Old Mutual now holds 22.4% of OMAM.

“Our cash and liquid assets position as at end of April was £586m and on a pro-forma basis, allowing for the completed transactions described above was approximately £750m,” Hemphill said.

“The impact of business activity and completed corporate transactions year-to-date has increased the Group's Solvency II ratio since year end by circa 5%.”

As the company had previously guided, there remained “significant” actual and potential demands on its cash and liquidity during the managed separation and plc wind down.

“As we proceed with the next steps of our managed separation strategy, cash utilisation will continue not only for the current plc structure, but also the resolution of contingent liabilities and managed separation and business readiness costs across the plc head office and the underlying businesses.”

The board had previously stated that the managed separation would be materially complete by the end of 2018.

To that end, Hemphill said it intended to pursue “one or more” transactions which will ultimately deliver two separate entities, listed on both the London and Johannesburg stock exchanges, into the hands of Old Mutual's then shareholders.

“One will consist principally of the OMW operations and the primary means of achieving this outcome is likely to be through a demerger, with the possibility of a small Initial Public Offering.

“There will be a new South African holding company, to be named ‘Old Mutual Limited’, which will initially consist of OMEM, the group's Nedbank shareholding and Old Mutual plc.”

Hemphill said Old Mutual plc was considering all options with regard to its cash, debt and contingent liabilities, taking into account the cash proceeds from disposals and requirements of the standalone balance sheets of the subsidiaries.

“These options include retaining debt in Old Mutual plc after the point of separation.”

The timing for the next stage of managed separation would, in part, be dependent on receipt of the required regulatory approvals, but the board currently anticipated the listing of OMW and the South African holding company to take place at the earliest opportunity in 2018 after Old Mutual plc's 2017 full year results, Hemphill explained.

“The subsequent distribution of a significant proportion of the shareholding in Nedbank from Old Mutual Limited would follow in due course, and in an orderly manner, as previously announced.

“Old Mutual Limited will retain an appropriate strategic minority shareholding in Nedbank to underpin the ongoing commercial relationship.”

Old Mutual expected to report next to shareholders on 11 August, with its interim results.